Since the pricing mechanism reform in Beijing, Hunan, Jiangsu, Fujian, Liaoning, Hebei, Inner Mongolia and other provinces was launched a year ago, the price pricing mechanism reform has been advancing steadily as scheduled. According to the reform timetable of these provinces, the pricing mechanism reform in electricity and natural gas will be a key task of this year. Particularly, the first around of pilot electricity transmission and distribution price reform in local grid will be fully completed.
According to local governments’ pricing reform plan, this year’s targets include: to deepen the pricing reform of natural gas, comprehensively promote the pricing reform of water for agricultural use, comprehensively push forward the pricing reform of medicines in public hospitals in cities and deepen the pricing reform of highway passenger transportation and civil air transportation.
The State Council makes further deployment on the electricity transmission and distribution price reform in local grid in a recent executive meeting. It came up with measures, including expanding the scale of direct trade between power generation enterprises and users, adjusting electricity price structure and reducing enterprises’ burden in electricity consumption by cancelling the fund for industrial enterprises structural adjustment, lowering the standards for major water conservancy projects construction fund and large and medium-sized reservoirs immigration follow-up support and reducing desulfurization and denitrification electricity prices.
The Economic Information Daily reporter learned from an industry insider that eight among the second batch of 12 provinces to carry out the pilot electricity transmission and distribution price reform were unveiled, and the other four will be announced soon. The rest 14 provinces are required to submit their pricing plans before the end of April this year to ensure to complete the review of their plans by the end of June.
In addition that the pilot electricity transmission and distribution price reform will cover all provincial grids the first half of the year, China will launch the transmission and distribution price reform in regional grids in northeastern, northwestern, central and eastern China. It will reasonably to develop or adjust the electricity transmission price across regions and provinces to promote the development of electricity transactions across provinces and the consumption of renewable energy in western China.
It is learnt that transmission and distribution price is an important part in the electricity pricing mechanism. In the past, transmission and distribution price is uniformly regulated and determined by government. China has not established a reasonable transmission and distribution pricing mechanism. The profit of power grid mainly comes from price difference between buyers and sellers. Therefore, the electricity costs for entity enterprise have remained high.
Wu Qi, head of commercial bank research center of Hengfeng Bank Research Institute, told the reporter that generally speaking voltage class the end user falls, the cost of power supply it will require. In other words, the power supply cost for residents are higher than that for industrial and commercial enterprises. Due to historical reasons and local factors, China’s exiting electricity pricing system has a serious problem of cross subsidy. This is also the key area and weak link of the transmission and distribution price reform, which causes the electricity costs of industrial and commercial enterprises are even higher than residents’ electricity costs. Take a province in central China as an example, the average electricity price of industrial and commercial enterprises is 0.98 yuan/kWh, while the average electricity price of residents is only 0.58 yuan/kWh.
The transmission and distribution price reform officially kicked off in 2015. Its first task is to determine electricity transmission and distribution price by permitting cost plus reasonable income. Government departments have taken up measures to preliminarily establish a scientific, standardized and transparent regulatory framework for electricity transmission and distribution price. The regulation on power grid enterprises has entered into a new stage. Meanwhile, the pilot reform is expanding. Other than the pilot reforms in Shenzhen and the northern Inner Mongolia, the power rides in Beijing, Tianjin and other provinces and the power grid in northern China were selected to carry out pilot reform in March 2016. The electricity transmission and distribution price reform which was scheduled to launch in 2017 is advanced to September 2016.
In 2015 and 2016, by implementing the linkage between coal and electricity prices and promoting market-oriented transactions in electricity, the transmission and distribution price reform has accumulatively reduced over 180 billion yuan cost of electricity.
In addition, the oil and gas reform is also advancing. Recently, the Central Committee of the Communist Party of China and the State Council issued the opinions on deepening of the oil and gas system reform, confirming the reform of oil and gas products pricing mechanism. The opinions propose to bring the role of the market into play in the determination of price and reserve the government’s right to regulate prices when there are abnormal fluctuations in price. Specifically, it will promote the market-oriented price reform of gas for non-residential use, further improve the pricing mechanism of residential gas; accelerate the construction of oil and gas trading platform, encourage qualified market players to participate in transactions, form price via market competition; strengthen supervision on pipeline transportation costs and price, scientifically develop pipeline transportation prices in the principle of permission cost plus reasonable income.
Up to now, the price of non-resident gases which accounts for 80 percent of the total consumption is led by the market. The Economic Information Daily reporter learnt that China has fully launched supervisory works for pipeline transportation enterprises pricing. Meanwhile, the guidance on strengthening supervisions on gas prices to promote the sales price reform of non-residential gas guidance is seeking public opinions. It proposes that local authorities should independently approve gas distribution price and determine different prices for different categories of users. The gas distribution price should be determined in the principle of permission cost plus reasonable income. The permitted rate of returns should not in principle exceed 6 percent of after-tax returns of effective assets.
Chi Guojing, secretary general of China Gas Association told the report that the main constraint of the development of natural gas is price. First of all, without taking account of environmental costs, the price of natural gas must be higher than that of coal. Secondly, the degree of marketization in the industry is not enough. The pricing mechanism and supply mechanism cannot promptly reflect changes in supply and demand structure, which have hindered the expansion of the downstream market.
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